21st Centry Challenges To American Democracy- Part II -Rising Public Debt, Dwindling Democracy
By Jon Kofas
26 April, 2015
Read Part I
Conservatives attribute the rising public debt to government spending on costly entitlement and social programs. They conclude that deficit financing for entitlement and social programs poses a threat to the free market which they equate with democracy. Liberals argue that the fiscal system favors the top income groups and such capital concentration poses a threat to a pluralistic society and the market itself. The public debt is indeed massive by historical standards for a peacetime economy. However, the US still has the advantage of using the dollar as a reserve currency that is more universally used for trade and transactions than any other, thus keeping interest rates low and funding “vertical economic growth” focused on capital goods and luxuries, as opposed to horizontal growth focused on labor intensive projects for the benefit of the mass consumer. (Romina Boccia, “How the United States’ High Debt Will Weaken the Economy and Hurt Americans. The Heritage Foundation”, 12 February 2013)
With rising GDP-to-debt ratio rates and with other reserve currencies on the horizon, the US does not have the luxury it has enjoyed since Bretton Woods in 1945 with regard to the dollar as the premier world currency. If the public debt is not contained by slashing the corporate welfare programs through subsidies and fiscal system as well as trimming defense that remains the largest in the world, then US debt-to-GDP ratio will double by the middle of the century. This will mean a weaker dollar and a weaker and smaller middle class that historically has been the backbone of American democracy. While the public debt by itself does not constitute a threat to American democracy, combined with other egregious policies it is a challenge because it is not creating wealth and raising productivity for the benefit of all, but concentrating wealth for the top one percent of the richest Americans.
Because there are foreign buyers of US treasuries and largely because China needs the US as a market as much as the US needs China to buy bonds, the dollar remains stable for now despite a debt-to-GDP ratio that could reach 190% by the early 2030s, according to the Congressional Budget Office. In 2008 when the global financial crisis started as a result of the subprime lending among other bank and insurance company scandals for which the US taxpayers had to pay bailout funds, US debt-to-GDP ratio was just 64%. In 2014 the ratio stands at 102%, costing taxpayers $223 billion. Servicing the debt amounts to 6.5% of the budget, which is still less than half of what it costs Japan to service its debt. The public debt per se is not the issue assuming that funding is used to finance future growth and development.
If there is continued borrowing to finance the military industrial complex and to continue the corporate subsidies, instead of financing labor-intensive economic growth, then the debt cycle will continue growing and falling more heavily on workers and middle class whose living standards will suffer more losses. While the US was a net debtor nation from its independence until the outbreak of WWI, the debt in the 19th century was invested in the civilian sector resulting in rapid modernization of the agrarian and mining sectors as well as manufacturing. It was not until the late 1880s-early 1890s that funds were expended to build a major defense sector. The result was upward socioeconomic mobility. After 1980, debt at unsustainable levels has been crippling, especially when it was not directed toward productive enterprises that create more wealth for the broader middle class. As the popular base of American democracy weakens partly because of the rising debt, this will have an impact on democracy no differently than in other debtor countries under austerity.
Finally, the debt burden falls inordinately on the middle class and workers, undermining not just social programs that would otherwise benefit society, but the fabric of a democratic society with a modicum of social justice as its base. One could argue that this would all be well worth it if it resulted in “horizontal economic growth” in which the broader middle class and workers benefited. However, debt crises only result in massive capital concentration and austerity politics results in authoritarianism. Debt becomes a creditor’s tool of influencing if not determining policies that the debtor must follow, thus losing national sovereignty. (Michael Moran, The Reckoning: Debt, Democracy, and the Future of American Power; Samuel Rines, “How Debt Destroys Democracy” The National Interest, October 2013; Andrew Ross, Democracy and Debt. http://what-democracy-looks-like.com/democracy-and-debt/)
Systemic Inequality, Corporate Power, and Parasitic Economics.
When the American Republic was founded, there was an institution of slavery, native Americans were marginalized with their condition becoming much worse a century later, women had no political rights, and social inequality was very much alive and deemed “normal”. Despite progress toward democratization of society in the past 200 years, the republic remains an unequal society in the early 21st century characterized class, racial, ethnic, and gender inequality. If we assume that industrial, technological and scientific progress necessarily yielded overall progress for society, including a course greater not less democracy, it would not be a wrong assumption. However, it would be wrong to assume that the Industrial and Scientific revolutions in 19th and 20th century America necessarily represent a parallel course toward democratization. The reason for this is that as much in the 19th century as in our own times, affluence simply buys influence. (Martin Gilens, Affluence and Influence: Economic Inequality and Political Power in America)
Hardly any political observer of American politics is unaware of how money buys favors that includes everything from subsidies to corporations to export their products, to tax breaks and tax loopholes for the very rich. Just one look at the occupancy rates of lobbyist office space in Washington D.C., northern Virginia and southern Maryland, and immediately there is a realization that entrenched corporate interests have a keen interest in determining policy. In some cases, the lobbyists actually draft the bills that go before Congress, in others, lobbyists have the last word and only conflicts among the disparate capitalist interests within the same sector or in different sectors are resolved through political compromise. (Ailsa Chang, “When Lobbyists Literally Write the Bill”, 11 November 2013, WWW.NPR.ORG; Jeffery Birnbaum, The Lobbyists: How Influence Peddlers Work Their Way in Washington)
If lobbyists determine policy on behalf of business, and if politicians do not take into account the general welfare of the broader population, is it any wonder that for the last four decades the US has been experiencing a downward social mobility and decline in democracy? One of the characteristics of American society in the early 21st century is inherited socioeconomic immobility. Unlike the children of the working class in the post-WWI decade, the children born in this new century to workers are unlikely to move into the middle class. There are very few mainstream media outlets that even cover this issue and those that do insist that inequality is not a threat to American democracy.
It is no secret that the US has one of the worst records among the G-20 in income distribution, any more than it is a secret that the US has one of the world’s highest wealth concentration, thus inequality, and a rapid downward socioeconomic mobility. Such polarization in the economic domain leads to political polarization, or at the very least alienation and this is a contributing threat to democracy. Advocates of neoliberal policies insists that the problem is not lack of fair income distribution, but government legislating minimum wage, safety, health and environmental standards, and layers of bureaucratic costs that make it difficult for companies to reinvest. (Richard Fry and Rakesh Kochhar, America’s wealth gap between middle-income and upper-income families is widest on record. Pew Research Center, 17 December 2014)
Many conservatives insist on slashing entitlements and revamping the entire social welfare system as we have known it, and just let the market fix everything the way it did in the Gilded Age! If government simply offered the private sector “opportunities” through contracts for all services performed by public employees, then all would be grand with society. As long as government outsources all services from cleaning services to complex engineering projects to the private sector, and as long as government keep paying those subsidies to corporations, bails out banks and insurance companies during recessions, and makes certain they paid the lowest possible taxes, there would be no problem whatsoever with society.
Therefore, democracy equals a neoliberal approach to public policy and opportunities for businesses carrying out government contracts. Where would this leave the middle class and workers is up to them individually based on what they have to offer the marketplace. Where would this neoliberal model leave citizens demanding accountability for all public services? Even today we can see the striking difference in everything from street maintenance to the condition of parks between an urban slum and a wealthy neighborhood. This reflects the very real class divide and reveals the fundamental inequality in services, no matter what politicians claim about government serving all people equally.
The real prospect that inequality will become worse and a permanent feature of American society poses a huge threat to democracy. Apologists of the political economy insist economic inequality is not a challenge for American democracy because inequality is simply a “natural” condition reflective of individual effort and ambition. Even those acknowledging there is a systemic problem propose that it can be solved only by raising productivity, not redistributing income. US productivity rates averaged about 3% from 1995 until 2005, outpacing the rest of G-7. Despite such impressive productivity rates surpassed only by China and the BRIC group, the middle class and workers continued to experience downward trend of incomes. Therefore, the productivity argument, which has been used since Adam Smith in the late 18th century, is hardly pertinent. Meanwhile, massive wealth concentration is a major problem for both the economy and democracy. The media and most in society applaud the news that Amazon CEO Jeff Bezos made close to $5 billion in profit in a single day on 24 April 2015, while a few may ask how can one individual make more money the combined annual GDP of eight sub-Sahara countries? According to the Wall Street Journal, America’s richest 3% experienced a 30.5% of income rise, in 2013, while the bottom 90% of income earners continue to lose income. According to various studies, the inequality gap is very real and becoming worse. In fact, US inequality is worse now than it was on the eve of the Great Depression, signaling a crisis in the economy and society. (Emma Bell, Soft Power and Freedom under the Coalition: State-Corporate Power and the Threat to Democracy)
Besides the grossly uneven income distribution impacting democracy, there is also the issue of the parasitic nature of the economy. There are many studies on banks and financial firms as parasites, just as there are studies about consulting firms and defense contractors as parasites, especially since they overcharge and their services are of dubious quality. One could argue as neoliberals do that dishing out contracts, even to parasitic entities, is one way to keep the private sector strong, even if it offers nothing back to society. Clearly, the narrow definition of a parasite to an economy is one that only takes and adds nothing to growth, productivity or value to the economy in the present or future, thus weakening it for the majority so the minority benefits. There are many examples from which we can illustrate this point, but let us take one that the New York Times exposed regarding the role of Goldman Sachs in the last ten years, although the same strategy has been carried out by J. P. Morgan among other major firms.
When Goldman purchased Metro International aluminum warehousing company, it slowed shipping to such a degree that Goldman realized $165 million per year in rents for the stored aluminum, not counting the sharp rise in profits resulting from higher metal price because of the artificial shortages. This is the same Goldman firm that was helping Greece and other governments during the 1990s and early 2000s to convert debt into assets on paper only, of course in order to deceive creditors and regulators. This illegal enterprise realized millions in hefty fees for Goldman and fooled the EU regulators, at least until the EU demanded an end to this practice. Ironically, at the time of these illegal activities, European Central Bank chief Mario Draghi was the head of Goldman’s international division!
Most large US and EU banks have been involved in scandals amounting to hundreds of billions in illegal activities resulting in the collapse of the financial system from 2008 until 2013. The bailout for the private banking system came from public money.
US and European banking scandals in the last two decades are salient factors in the massive transfer of capital from society into the hands of very few people. This as government repeatedly intervenes to save banks using taxpayer money and lowering living standards for the middle class and workers in the process, but justifying it on the basis of a) too big to fail, and b) jobs would be lost.
All along, the media has been singing the praises of the “heroic capitalist” while vilifying the state as the culprit in these scandals, as though the state has been acting on behalf of the general public instead of finance capital. Banks demanded deregulation so they can engage in high risk practices with funds of depositors that they gambled, and for which they had to pay billions in punitive fines both in the US and European governments. Yet, according to the media the fault rests with government for failing to do its job right. (Steve Schifferes and Robert Manning, eds., The Media and Financial Crises: Comparative and Historical Perspectives)
Beyond the systemic problem of legal and illegal parasitic capitalism that is global and not the domain of a single country, there is the direct correlation between healthy economic development and a thriving democracy. Healthy economic development where the benefits are fairly distributed among workers and the middle class that produce wealth and democratization of society cannot possibly take place when a tiny percentage of the population owns the vast wealth and keeps recycling it without investing for the broader good of all people. The higher the level of parasitic economic activity in a society, the lower the level of democracy, a phenomenon invariably associated with underdeveloped nations but actually plagues the US and the EU. (Tatu Vanhanen, Democratization: A Comparative Analysis of 170 Countries; Nicholas Ryder, Financial Crime in the 21st century: Law and Policy; Ismael Hosein-zedeh, Beyond Mainstream Explanations of the Financial Crisis: Parasitic Finance Capital).
According to a Rolling Stone article, the London-based firm ICAP which is the world’s largest broker of interest-rate-swaps, has been involved in a massive banking scandal. The interest-rate-swap market is worthy $379 trillion, which means that ICAP in essence has the immense power of manipulating massive amounts of capital by fixing rates and manipulate the market on behalf of its clients that include the largest US and EU banks. The shocking thing here is that the US government draws some of its top people to run various departments, including Treasury from financial institutions that the Justice Department has repeatedly fined for all sorts of violations. How can democracy possibly function in practice as it is conceived in theory when the same people who manipulate markets to the benefit of the very few insider investors that government entrusts the mechanisms of running a democracy? http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425#ixzz3Y4HyHpDJ
The Supreme Court and the new Gilded Age
Is the Supreme Court out of touch with the American people and has the nation’s highest court reverted to the Gilded Age of the late 19th century during the era of robber barons? The role of the Supreme Court has always been very important in interpreting Constitutional law and its rulings are significant in either strengthening democracy for all citizens, or weakening it so that the privileged few may prevail. In September 2014, senators Tom Udall and Bernie Sanders wrote that a century of hard won battles to create a more democratic society have been obviated by recent developments. For example, American democracy has become less inclusive because the Supreme Court has 1) struck down important elements of the Voting Rights Act and 2) diluted campaign finance laws, permitting even greater influence by the very rich in the political arena.
As campaigns become increasingly more expensive, a few hundred people directly and through various entities, including super-PACs, exert dominant influence in politics. It is for these people that policy is formulated to the detriment of the rest of society because they have paid to elect politicians at every level of government. The Supreme Court justified buying political influence with the First Amendment that constitutionally protects free speech. Senators Sanders and Udall argued that: “Americans’ right to free speech should not be proportionate to their bank accounts.”
When the Supreme Court becomes an impediment to democracy and fails to protect all citizens so that it can serve the politically entrenched elites, then the democratic regime itself has suffered a damaging blow. The republic survived the Gild Age when the Supreme Court was serving the narrow interests of the very rich, and it will survive the criticism today that it has reverted to 19th century undemocratic thinking. However, no matter how much the Supreme Court tries to legitimize social injustice people know the difference between what is just for a society and what is unjust. This is something that Justice Louis Brandeis grasped more than any other Supreme Court Justice as he realized that a democratic government must balance societal inequities that industrial capitalism produces to represent the interests of all social classes. Everything from utility regulatory powers to setting up a social safety net were issues with which government has a legitimate role to preserve the pluralistic nature of liberal democracy evolving under a rapidly changing political economy. Serving in the court during the tumultuous interwar era, Brandeis recognized the contradictions of capitalism and democracy, stating that: “We can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we cannot have both.”
During the “Warren Court” era under Chief Justice Earl Warren, 1953-1969, America actually made moderate progress toward realizing the democratic goals of the Constitution. Key constitutional amendments dealing with equal rights for minorities were ratified, while at the same time the political climate moved toward greater pluralism and tolerance and away from the apartheid conditions that existed before the Civil Rights movement. The Supreme Court in the recent decades, especially in the last two, has devoted itself to striking down all progress of the part with regard to equal rights, free speech, and due process, while using free speech to strengthen the role of big capital.
At the same time, the Supreme Court ruled in favor of violating human rights when it came to Guantanamo Bay detainees, in direct conflict with the UN Human Rights Commission. That the US Supreme Courts fails to safeguard human rights and civil rights, while using Constitutional amendments to strengthen the wealthy is indicative how far from the people and from any sense of justice it has been and remains to this day. Supreme Court Justice Ruth Bader Ginsberg has warned that if there are no limits on campaign contributions, the result will be that a few hundred people will control the country. Justice Ginsberg recognized the dangers to democracy of massive wealth concentration just as did justice Brandeis several decades before her, but these were and remain minority opinions in the history of the Supreme Court. (Ian Millhiser, Injustices: The Supreme Court's History of Comforting the Comfortable and Afflicting the Afflicted; Lawrence Goldstone, Inherently Unequal: The Betrayal of Civil Rights by the Supreme Court)
Islamophobia and Terrorism, and Right-Wing Politics
In the early 1990s, it appeared the Cold War as a way of life was coming to an end. However, the US would only replace it with counter-terrorism and simply transfer the anti-Communist ideology and institutions into the domain of anti-terror ideology and institutions, thus perpetuating the status quo. This was done in part because it was the only way to justify maintaining very high levels of defense spending, in part to keep the global imperial network as leverage for global hegemony, and in part to continuing forging a popular consensus around security issues. In the absence of Communism as a threat to Pax Americana, militant Islam had to be invented as a global security threat. First there was the imminent threat from Iran after the 1979 revolution, simply because Iran was no longer economically, militarily and politically obsequious to the US. Then the alleged security threat of Saddam Hussein became a massive regional threat to all of the Middle East and by extension to the US because Iraq. Finally, came 9/11 that allowed for the US-led global anti-terror campaign. All of these were massive threats to American democracy as far as both Republican and Democrat politicians were and still are concerned. The only question was the degree to which Islam jihadists posed the kind of threat the US government described. Secondly, is such a threat the underlying cause undermining democracy or is the government’s institutional structure intended to combat the threat the real obstacle to democracy?
If the war on terror had actually reduced instead of increased both the number of jihadists while lessening the culture of fear resulting from the institutionalization of counter-terrorism, then one could argue that it was worth the sacrifice of human rights and civil rights, of democracy, and social justice. The institutional structure – Homeland Security, “war on terror” unilateral foreign policy, and police-state methods that override all civil rights and human rights – remain in place in a country that calls itself a ‘democracy’ and committed to spreading its values, rather than economic imperialism throughout the world.
According to one poll, only 20-40% of Americans were immersed in fear one year after 9/11, while in 2014 the fear factor ranges from 47% -65%. It is ironic that the wealthiest country in the world is terrified by a culture of fear that the media, both conservative and liberal, reinforces on a daily basis. This is largely because the elites have succeeded conditioning the majority of population to subordinate their democratic impulses to the “emergency security state” as though the US is in perpetual war. The end result is an inward-looking population afraid to question the existing social order and political regime that values conformity far more than it does pluralism, equality, and freedom.
While the mass psychology of fear may appear counterproductive to those advocating pluralism, democracy, equality, social justice and creativity as core values in society, as far as the political, social and economic elites are concerned the culture of fear helps to engender conformity at all levels and helps to maintain loyalty to the existing social order and political economy that strengthens the hierarchical structure. The domestic implications of the counter-terrorism regime can be seen on the role of city police departments toward black males and minorities in general. Islamophobia has wider implications of how authorities see illegal immigrants from Latin America and blacks. The idea that the minority is the enemy is deeply rooted in the culture of intolerance by the white majority toward the non-white minority. White there is videotaped evidence of repeated patterns of behavior on the part of the police toward minorities the mainstream media continues to defend the police forces, focusing not on the political culture of intolerance but on the “unusual singled out” action of a cop killing a black male. The challenge of American democracy in the 21st century is to leave the culture of fear behind, something that cannot be done unless the government abandons the political culture of counter-terrorism targeting Muslims as though they are the new Communists about to take over Omaha from the good Christian folk.
When one listens to right wing talk radio and watches TV programs such as FOX News, listens to right wing politicians demonize Muslims and castigate Latin immigrants, it is easy to understand why a segment of the American institutional structure has abandoned all pretenses to dealing with citizens of a democratic society. Just as there is a crusade to hunt down and kill militant Muslims in Afghanistan, among other places, similarly there is a crusade against minorities at home if their class status does not transcend their ethnicity and race. All along, the Justice Department has done nothing about the sharp deterioration in tolerance at the institutional level, let alone at the cultural that receives its messages from the media. (Carl W. Ernst, Islamophobia in America: The Anatomy of Intolerance; Clifford A. Kiracofe, Dark Crusade: Christian Zionism and US Foreign Policy)
The evangelical wing of the Republican Party has opportunistically used the “war on terror”, just as it used the anti-Communism during the Cold War to promote its own agenda and elect officials who embrace that agenda. It is not that the Republican evangelicals believe they can create a theocracy, but they know that they can use the counter-terrorism issue just as they used the Communism issue to engender sociopolitical conformity, and distract the American people from social and economic interests impacting them. Using religious fanaticism to polarize society and maintain conformity and a docile population, the government and media add the moral-religious dimension to foreign policy issues intended for domestic political consumption. This undermines the very fabric of America’s pluralistic tradition and poses a major challenge to democracy. If the evangelical wing of the Republican Party did not have behind it millionaires and billionaires supporting its agenda, and if it did not have the mainstream media, then its voice would be a faint one. What makes it powerful is the big money hiding behind the message, not the message. (David Green: The Biblical Billionaire Backing The Evangelical Movement; FORBES, October 8, 2012; William V. D’Antonio, et al. eds., Religion, Politics, and Polarization: How Religiopolitical Conflict Is Changing Congress and American Democracy)
The assumption that the threat to democracy is coming from out there somewhere, from evildoers whether they are Islamic jihadists or Russian nationalists is utterly absurd. Democracy falls from within under its own weight when it deviates from the social contract. The great Athenian writer Aristophanes realized this 2,500 years ago. American journalist and Presbyterian minister Chris Hedges argues in “How Democracy Dies: A Lesson from the Master” (Aristophanes) that society decays from within by corruption, greed, arrogance, distortion of ideals designed to promote the welfare of all people, and of course perpetual militarism that debilitates society and ultimately contributes to its demise.
“There is a yearning by tens of millions of Americans, lumped into a diffuse and fractious movement, to destroy the intellectual and scientific rigor of the Enlightenment. They seek out of ignorance and desperation to create a utopian society based on “biblical law.” They want to transform America’s secular state into a tyrannical theocracy. These radicals, rather than the terrorists who oppose us, are the gravest threat to our open society. They have, with the backing of hundreds of millions of dollars in corporate money, gained tremendous power. They peddle pseudoscience such as “Intelligent Design” in our schools. They keep us locked into endless and futile wars of imperialism. They mount bigoted crusades against gays, immigrants, liberals and Muslims. They turn our judiciary, in the name of conservative values, over to corporations. They have transformed our liberal class into hand puppets for corporate power.” (Chris Hedges, Democratic Underground, October 2010)
Jon Kofas is a retired university Professor from Indiana University.
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